Firms hope their compounds will be tomorrow’s medicines

[Source: Phoenix Business Journal, Angela Gonzales] - While only a handful of big pharmaceutical firms have a presence in Arizona, the Grand Canyon State is home to a plethora of smaller companies in the early stages of drug development.

The problem is, it’s getting more expensive and taking longer to get drugs to market, and most of the drugs being tested are failing long before they hit the shelves.

Only 16 new medicines were approved by the U.S. Food and Drug Administration in 2007 — one of the lowest totals in more than two decades, said Dr. Ray Woosley, president and CEO of the Tucson-based Critical Path Institute, which is working with big pharma and the FDA to get drugs to market quickly and safely.

As a result, the world’s pharmaceutical industry is turning its attention to biotech companies, hoping their compounds are tomorrow’s answer to today’s diseases.

Local biotech companies are positioning themselves to catch big pharma’s attention as they test their novel compounds in animal studies and early human trials. Many of them are counting on getting licensing agreements before their compounds reach the expensive phase three clinical trials.

For example, InNexus Biotechnology Inc. has a commitment from Ontario, Canada-based Royalty Pharma Inc. for $34.5 million in funding to help get its compounds through the early phases of human clinical trials. At that point, the goal is to hand the drugs off to the pharmaceutical industry, said Jeff Morhet, president and CEO of InNexus.

“Given this market, distinction is critical,” he said. “You’ve got to be able to show what you’ve been able to produce is going to provide value.”

John Carroll, editor of FierceBiotech, which tracks the industry nationwide, said it has been a seller’s market for quite some time, which has been good for biotech companies.

“I’ve seen some very sweet deals,” he said. “Pharma companies need these new therapies, and they haven’t done well coming up with new major drugs to replace the blockbusters that they’re losing off of patent.”

However, Carroll said the tide changed in October.

“It’s not a seller’s market anymore,” he said. “It’s more of a buyer’s market.”

Now, big pharma is in a position to swoop in and buy struggling biotech firms’ assets at a mark-down, he said.

“If you’re a little biotech company and got two years of operating capital, that’s OK,” he said. “It’s all a question of positioning right now.”

He’s seeing biotech companies laying off 25 percent to 40 percent of their work forces nationwide.

“Usually, if I had one biotech restructuring or laying off staff as a result of an FDA rejection or failure, that was not uncommon,” Carroll said. “Now, you’re just seeing a whole slate of different biotech companies laying off.”

2009 will be a ‘long, hard row’

Carroll said he doesn’t see any short-term prospects for a turnaround.

“We’re just getting into it,” he said. “2009 is going to be a long, hard row for a lot of people to hoe.”

Biotech companies that have two years of operating capital will be able to weather the storm, he said, but he doesn’t see many with that much capital.

Pharma doesn’t have to be so desperate anymore, according to Steven Burrill, president and CEO of San Francisco-based Burrill & Co., a financial firm that focuses on life sciences.

“They know biotechs will come and talk with them,” he said. “They can hang back and wait. They do have rapidly depleting pipelines, but they don’t have to be in as big a hurry and they may not have to pay as much.”

Michael Wilhelm, president and CEO of Scottsdale-based ImmuneRegen BioSciences Inc., said he hopes a large biotech or pharma will acquire or license his company’s drugs.

“Those conversations are happening more so than they were,” he said.

Spreading out the Risk

Large pharma companies have invested a lot of money in research and development, and they have not seen a commensurate increase in the number of drugs that have been approved, said Hal Siegel, chief scientific officer for ImmuneRegen.

“They’re looking to spread out the risk by partnering with small companies earlier in development so they can fund the research in a broad number of compounds that are still early-stage,” he said. “They’re hedging their bets, making larger investments in better compounds later on.”

Gail Thurston, vice president of corporate and business development for Apthera Inc. in Scottsdale, said the pharmaceutical companies have distribution networks set up to take new drugs to market — something Apthera and other small biotechs don’t have.

“We will provide the tools for a big pharma company to go out there and get the numbers that we projected for sale over the next decade or so,” she said. “Our patents are quite young. They won’t turn into generics any time soon anyway.”

She said she hopes Apthera’s compound will enter phase three clinical trials by the end of next year, with a global partner to co-develop its portfolio of cancer drugs.

“There are not a heck of a lot of companies like ours that have late-stage products that are available for licensing,” she said. “People are taking notice.”

Jeffrey Berk, president of Scottsdale-based MedPredict Market Research, said it’s crucial for biotech and pharmaceutical firms to trudge forward in their research efforts for new drugs and therapies.

He pointed to Novartis Pharma US’ 9-year-old drug, Gleevec, which treats chronic myeloid leukemia. Before the drug was invented, patients with that disease would live for about a year. With Gleevec, their life expectancy increases to eight to 10 years. About 4,500 Americans get the disease each year. Now, fewer than 400 die from it each year.

“You have to understand what pharma can deliver,” Berk said.